FRAN KELLY: Australia's biggest banks were briefed by Treasury yesterday on that surprise new bank levy announced in Tuesday night's Budget, but the banks say it's left them with even more uncertainty.
From 1 July, the big four banks plus Macquarie will contribute an extra $1.5 billion per year to the Budget bottom-line thanks to the new tax. The banks have slammed it as bad public policy, concocted on the run as a political tax grab; and the ratings agency, Moody's, warns it will lower bank profits by 3.8 per cent. But the Treasurer, Scott Morrison, he's not backing down.
SCOTT MORRISON: $1.5 billion out of a $30 billion pool of profits, Fran. This is not an unreasonable levy, it's not an inconsistent levy. It's actually a very well-structured piece of policy. See, Fran, I want them to be unquestionably strong, I also want them to be unquestionably fair, I want them to be unquestionably competitive, because that's what our banking system should do to do the right thing by their consumers.
[End of excerpt]
FRAN KELLY: That's the Federal Treasurer Scott Morrison with us on Breakfast yesterday.
Well Ian Narev is the chief executive of Australia's biggest bank, the Commonwealth Bank. Ian Narev, welcome back to Breakfast.
IAN NAREV: Good morning. Good to be with you, Fran.
FRAN KELLY: You heard the Treasurer there; this is a well-structured piece of policy, he said, it will lead the banks unquestionably strong and he wants you to be unquestionably fair as well. Is he right or is he wrong?
IAN NAREV: Well we certainly agree with being fair, that's a very important part of being banking and so is being strong. And the impression we got left with after many of our representatives met yesterday with Treasury - and bear in mind, we've worked with Treasury for years, these are excellent people, very highly skilled - if they haven't got answers to questions, as they didn't yesterday - this isn't their fault at all - this must mean this was policy concocted on the run. And policy concocted on the run puts the strength of banks at risk.
FRAN KELLY: So you don't agree it's a well-structured piece of policy?
IAN NAREV: Well we don't even fully understand the structure at the moment, Fran. And let me give you an example, the Treasurer on your show yesterday quite rightly said it doesn't apply to capital, but equally important about banks being unquestionably strong is liquidity and based on what we understand to date there may actually be a bit of a disincentive to build up liquidity buffers, which is a very important part of withstanding funding crises. Now, if we're not sure about that yet, that really goes to the heart of banking strength and that doesn't sound like well-structured policy to me.
FRAN KELLY: So after the meeting of the banks with the Treasury official, are you saying you're not clear on what you're paying and why you're paying, or you're concerned about how it might influence your behaviour as you try and protect your profit lines?
IAN NAREV: Well we're saying two things. Number one, is there are all sorts of questions as yet unanswered and the time frames within which this is being worked through are very short given the magnitude of the tax. That's our impression coming away from yesterday. More broadly what we've said is that there's a lot of talking about absorbing and anyone who runs or owns or works in a business know that a cost can only go one of two ways: to customers or to shareholders. Now, governments may somehow be able to find a third place for cost to be absorbed, but businesses can't and all we've said is in the end, this ends up either going to customers or going to shareholders and basically that's all Australians.
FRAN KELLY: Well why can't you absorb it though? I asked the Treasurer this exact question yesterday, he said the banks make $30 billion profit, this is $1.5 billion they need to absorb and he said; the banks absorb costs if your electricity costs go up, you don't pass that on to the shareholders or the customers.
IAN NAREV: Fran, there's no such thing as absorbing. Either prices go up or shareholders get less. There's nothing in the middle. And this is the point that's being missed. Now, the other point that's being missed here is that we paid $3.6 billion in tax last year, so the Commonwealth Bank is the biggest taxpayer in the country and when the Government found a Budget shortfall in the spending it wanted to do, it didn't look to tax the businesses that were paying no tax or less tax or other options or cutting spending; it said let's go to the people who are already paying the most tax and let's take more tax off them with no warning.
FRAN KELLY: Well you know what it did say, the Government said let's go to the sector of the economy that is really unpopular. As the Treasurer said this week; people don't like you. The banks have brought this on themselves, haven't they?
IAN NAREV: Well here's one thing we can agree with: this will test well in the opinion polls. The question we should be asking as the public is: if a government's going to judge its success of an economic budget on the next day's opinion polls, is that the kind of economic policy we want?
FRAN KELLY: Well your counterpart at the ANZ, Shayne Elliott, he's acknowledged this week that the banks have done this damage to themselves. He said it's self-inflicted to some degree; quoting him here, the banks should have done a better job at explaining how they are changing. People hear so many stories, Ian Narev, of fraud, of mis-selling, of poor treatment of customers, bad advice. You know, you see your credit card interest rates sky high; you go to the ATM, you cop a fee; a late payment, you cop a fee. That's why people are on board with this tax. You do get that, don't you?
IAN NAREV: Fran, I've been on your show a few times and you've put these things to me a few times and I've agreed. I've said there's a lot of work the banking system has got to do. We're up for it, we're doing it, the ABA's plan shows we're doing it, the Sedgwick Remuneration recommendations that we're implementing show that we're doing it, the Commonwealth Bank's changing to small business covenants show we're doing it. That's all happening. This is an opportunistic use of that to grab tax from the banks and through the banks from all Australians. These are different points.
FRAN KELLY: Well you may be doing it, you may be making the changes but as you say the opinion polls will be clear. You're not even in any doubt of that. The people will back this. Can you look at this in another way? Can you see the $6.2 billion is the price the big banks have to pay to restore people's trust in them?
IAN NAREV: People should be asking themselves this week banks aren't popular in the opinion polls. In a year's time it will be different businesses, the Government can then grab their tax.
FRAN KELLY: Then all big corporations are at risk and point out no other industry or corporation has an implicit guarantee from taxpayers, only the banks do. Only the banks benefit from such a guarantee and that effectively lifts your credit ratings by two notches and therefore lowers the price you pay for wholesale money.
Now, according to the Government this is just other part of that bargain. You've got to give a little bit back.
IAN NAREV: Well we keep hearing different reasons pulled out depending on who's asking the Government what question as to why this happened. First as to the question of other industries. Alan Joyce was on your show yesterday. He's one of the most esteemed leaders in corporate Australia. Among everybody Alan made it clear that many business leaders outside banks have a concern about who's next. Secondly, a lot of debate's been had about this guarantee. Back in 2008 a wholesale funding guarantee was provided to the banks by the Government because all other governments around the world were doing it. The difference in Australia is the Government got $5 billion for that guarantee from the banking system and it was never drawn on because this has been among the most strong banking systems in the world. And whenever the Prime Minister and the Treasurer are reeling out all these other countries where this tax has been implemented, they have never been asked would you prefer that country's banking system? And I think the answer for all people's justifiable concerns about the banking system here is that we have one of the best in the world and there is no justification for taxing it more.
FRAN KELLY: You're listening to RN Breakfast. It's four minutes to seven. Our guest is the chief executive officer of the Commonwealth Bank, Ian Narev.
Ian Narev, to quote the ANZ chief Shayne Elliott again, he said the banks should have done a better job at explaining the more positive roles we play as taxpayers employees. Are the banks going to do that now? Will the banks campaign against this tax? Will you launch an ad campaign as the miners did against the mining tax?
IAN NAREV: Well the first thing we're going to do is provide a response to the people who are asking us questions and that started for me on Wednesday with a note to our 50,000 employees and I can tell you that I have never in my almost six years of the chief executive of the Commonwealth Bank had a more positive response to a note than I've written to my people. Other banks CEOs did the same thing so that's 150,000 Australian people who we employ who heard from their chief executives on Wednesday about what bad policy this is.
I think that once we get all the detail which still looks very shaky, at that point we'll probably have to respond to investors' questions because they're going to want to know. For us that's 800,000 Australian families who own the Commonwealth Bank and millions more who own them through their pension fund. So we'll make sure that our stakeholders who are asking us questions understand our views of the policy and the impact on them.
FRAN KELLY: Do you have plans though for a full bore campaign, an ad campaign, a billboard campaign or do you accept that given the public opinion towards the banks that it could just backfire?
IAN NAREV: It is a responsibility that we've got once we understand all the details to explain the impact of the policy and to explain that it really is a tax on all Australians and once we have all the details and we can work through them we will work out the best way to do that.
FRAN KELLY: Is there anything that you can negotiate the Government that you would accept and force you to go quietly? If this was a fixed term tax would you accept that? Have you asked for that?
IAN NAREV: Well we haven't asked for anything because we haven't been consulted and the reality is the first time we heard about this was one hour before the Budget when the head of the Treasury rang and told us what was happening. So there hasn't been a conversation because the Government which has said on many occasions how committed it is to consultation, didn't speak to the banks that are at the core of the financial system.
FRAN KELLY: Ian Narev, just before we go. There's a lot of people listening to you now who probably have mortgages with you and the other banks. Can you reassure them that the Commonwealth will not raise their mortgage rates because of this tax?
IAN NAREV: You know that I'm never allowed to talk about our pricing intentions, but what I can tell people is that we are aware of the importance for all our customers of keeping interest rates as low as we can. We hear that very loudly and we will make sure we listen to that very very carefully.
FRAN KELLY: But someone has to pay?
IAN NAREV: Well I've said before there's no such thing as absorbed and I think our shareholders ought to be asking the same questions about what the impact might be for them.
FRAN KELLY: Ian Narev, thank you very much.
IAN NAREV: Thanks, Fran.
FRAN KELLY: Ian Narev is the chief executive of the Commonwealth Bank.